This article originally appeared in the February 2013 issue of Architectural Digest.

One test of good architecture is how well it confronts limitations. Does the design adapt to the constraints of a tight schedule or a difficult site, overcoming or embracing such realities—lessons learned—to glorious effect? Or does it fail to come together in a pleasing and compelling way? To put it in familiar terms, when life gives architects lemons, what do they end up with?

In the case of Hillside House, a dwelling designed by Lake | Flato Architects on the outskirts of Austin, Texas, it’s all lemonade—satisfying, comforting, and crisp. The challenge faced by the San Antonio firm is hinted at in the name that principal Ted Flato and his colleague, Karla Greer, a partner, gave the residence, which is perched at the top of a precipitous incline. An exalted spot just west of downtown, the location affords commanding views of the city. But there was precious little land to build on—especially after local ordinances dictating deep setbacks from adjacent lots and roads (50 feet in one case) were observed. Where to put a family home that would measure 5,000-plus square feet?

“The shape of the property is so strange. It’s like a slice of pizza,” says the owner. “That’s why we went with Lake | Flato—they’re good at siting buildings. They’re known for that.” That, and their laid-back Texas modernism, exemplified by environmentally friendly dwellings that don’t skimp on elegance while still inviting residents to put their feet up.

Ted Flato and Karla Greer of Lake | Flato Architects devised Hillside House, a two-story home partially submerged in its steep plot in Austin, Texas. The interiors were conceived in collaboration with decorator Terry Hunziker. The landscape was transformed by the Garden Design Studio.

“It’s a steep little hill, and houses seem to tumble off it in every direction,” Flato says. “Sometimes, in that situation, you feel like you’re in an airplane floating above the land. But we wanted to ground the architecture in the land.” That instinct led to breaking the home into two distinct, non-overlapping levels—one at the top of the bluff and the other half-buried, out of sight but connected effortlessly via a wide, sunny stairwell.

On the top floor, the primary living spaces and the master suite occupy adjoining volumes crowned by standing-seam metal roofs, turning their limestone-walled backs to the street and looking out to the view through floor-to-ceiling windows. Below, edging down the slope, is the second wing, composed of three children’s bedrooms and a sitting room, all partly submerged in the terrain but still bright and airy thanks to large windows and the deft placement of a skylight. Fronting these lower-level spaces is a lap pool, while overhead is a broad, flat lawn—quite unexpected given the inhospitable topography—featuring a pergola-shaded terrace for dining and several live oaks that the home’s irregular layout was intended to spare.

Inside, Seattle-based decorator Terry Hunziker conceived understated interiors that fit “like a cozy sweater,” the owner says. Because Hunziker became involved early in the process, when the design was still taking shape on paper, he was able to consult on the mix of materials as well as develop schemes for the furnishings and inform the choice of art, which includes large-scale signature works by Damien Hirst and Vik Muniz. Many of the walls are clad in white oak or wenge veneers, providing a warm contrast to others built of concrete, limestone, and glass. Complementing that sophisticated blend is a collection of pared-down furniture, much of it custom made. In the living/dining area, light fixtures by Christian Liaigre and Ingo Maurer mingle with seating of Hunziker’s design, its earth-tone upholstery enhancing the dwelling’s overall neutral palette. “Terry has an impeccable sense of color and texture,” Flato says. “It was a strong collaboration.”

It is a true testament to the skill of all who worked on the project that, walking up to the home, peering over its limestone walls, passing through the dramatic pivoting front door, exploring its wide halls and generous rooms, and eventually encountering the anomalous lawn in back, one would never know there was a struggle with the site. The inspired subtlety of the architecture—the quiet merging of useful indoor and outdoor spaces into a private haven—suits the family. “We wanted the place to be understated, not to say, ‘Look, there’s a great big house on the side of the hill!’ ” the owner explains. “It speaks softly.”

But if you listen closely, Hillside House does have some wisdom to offer about how to live with the land. As the owner puts it: “You wake up and see that sky— and it doesn’t matter what happens during the day. Nature just washes away everything.”

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